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Falling oil price skewers Stephen Harper’s economic plan: Walkom

The PM’s economic strategy relies on an oil price high enough to cover the cost of extracting bitumen from the tar sands.

For this government, Alberta’s oilsands were the key to Canada’s economic future. But it rested on one thin reed: an oil price high enough to cover the cost of extracting bitumen from the tarsands.
Now, with oil prices expected to remain low for the indefinite future, the entire project looks increasingly iffy, writes Thomas Walkom.
(JASON FRANSON / THE CANADIAN PRESS file photo)

That became glaringly obvious in the stock markets late this week as investors bailed out of energy companies.

The reasons for the oil price collapse are varied. China’s energy-reliant economy is slowing down. New shale oil production from the U.S. is creating a glut. The cartel known as the Organization of the Petroleum Exporting Countries has been unwilling or unable to enforce high prices.

If prices follow their historical pattern, they won’t stay down forever. But no one knows whether this slide will last a few weeks, two years or a decade.

Which is the trouble with commodity prices in general and oil prices in particular: They are volatile and unpredictable.

Sensible countries try to lessen their dependence on volatile commodities. Canada, whose economy has been dominated by resource exports since the 16th century, spent much effort over the years trying to do break free from this dependence — usually by encouraging secondary manufacturing.

The aim was to diversify the economy so that offsetting forces were created. A fall in oil prices, for instance, might hurt Alberta’s petroleum sector. But the consequent cheap energy would aid Ontario manufacturers and the country could keep on an even keel.

For years, this was the unstated theory behind what was in effect a crude form of industrial strategy.

Much of the time, it more or less worked.

But to the Harper Conservatives, this kind of industrial strategy is anathema. It brings up images of grey bureaucrats in even greyer suits telling business what to do.

For the Harper Conservatives, the market is king. And if the market wants oil, then Canada will provide.

Manufacturing? Phooey. If the Chinese can manufacture toasters or ketchup more cheaply, better to buy from them, using the money derived from selling high-priced resources.

That was the theory. In the real world of politics, compromises had to be made.

Harper did join with U.S President Barack Obama to bail out General Motors and Chrysler. Ottawa continues to lure auto company investment with grants.

But at the same time, the Conservative government has signed free trade deals with South Korea and the European Union that, among other things, penalize Canadian auto manufacturers.

And while it likes to announce programs to encourage new kinds of manufacturing, it has little interest in following through.

As Toronto MP Peggy Nash points out, Ottawa — with much fanfare — announced a $200 million fund in 2013 to boost innovative manufacturing. But 18 months later, it has not approved a single project.

In fact, Harper has his own unspoken industrial policy. It can be summed up in a word: pipelines.

The Conservatives have used federal government power to override or repeal any kind of environmental regulation that might interfere with the export of oil, by pipeline, from the tarsands.

Harper wants pipelines from Alberta to reach the Pacific coast, the Gulf of Mexico and New Brunswick — all to transport oil that, if prices continue their slump, will be uneconomic to ship.

The fall in oil prices does, on its own, create some countervailing offsets. Low oil prices mean a low Canadian dollar; a low dollar benefits Canadian manufacturers exporting to the U.S.

But for this low dollar to work effectively there must be enough Canadian manufacturers willing to take advantage of it.

Thanks in part to globalization and in part to the actions of this particular government, there aren’t.

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